Varoufakis Was Brilliant!

TL;DR: Varoufakis' talk was great, he praised Econ History and challenged us prospective PhD students to live a miserable but honest and morally consistent academic lives or embrace the mainstream and bide your time. I'm becoming increasingly good at double-thinking and I'm willing to take the mental challenge that cognitive dissonance offers.

I'm in the midst of seven incredibly fruitful days filled with absolutely great speakers. Last weekend, at the ALS Friedman conference, I enjoyed many great talks, none better or more touching than Yeonmi Park's story of how she escaped North Korea. On Sunday, I'm going to Niall Ferguson's lecture at Sydney Opera House - and today I had the great pleasure of listening to Yanis Varoufakis' appointment lecture, marking his honorary appointment in the department of political economy at the University of Sydney. When he gave a lecture at Sydney Uni last time, back in November, he said a whole bunch of remarkably senseless things, which I outlined in a post back then. This time around, I was therefore expecting something similar.

Oh, how mistaken I was!

Maybe the topics he spoke on today resounded with me, or maybe I'm simply a hard-line materialist who enjoys when somebody praises my two pet projects in economics: Economic History & History of Economic Thought!

Varoufakis is an incredible speaker. He's charming, intelligent, extremely well-read, entertaining and able to capture an audience without resort to fancy slides or even notes to guide him. If you filter out the occasional allusion to Marx and the spontaneous leftie touch, his message is clear, brilliant and important. Framed in a Matrix blue-pill-red-pill and how political economy fits into that description, he tells a story of how dominant thinking in (vulgar) economics department is seriously broken, gives a few reason and explanations for why that is, praises Economic History, History of Econ Thought and reality as the solutions, and lastly hands us prospective PhD students a serious challenge to think about.

How can I be upset with such a speak? I simply can't. So let's go through it.

The criticisms against mainstream economics that come out of the Post-Keynesian and Marxian tradition tend to be among the best ones. I'm still in love with Steve Keen's ridicule of indifference curves and utility-maximising, where he shows that an optimising agent would have to perform more optimisation operations (where monotonic preferences just touch the budget constraint) from simply walking into a supermarket than the amount of particles in our brains. Good luck shopping groceries...

Varoufakis echoed another common objection among Marxian scholars: that our preferences are not independent. They are not created in a vacuum, and we're influenced by, say, our parents. And not only in a hereditary sense, but that we don't want to disappoint them. In other words, our "utility functions" must contain what our parents expect of us - and what we in turn expect our parents to expect of us. More specifically, if my "pure" utility function would be maximised by me studying art history, but my mother expects me to be a great lawyer, insofar as I do not want to disappoint her, my utility-maximising point has to be a sub-optimal one that includes her expectation, and presumably studies of Law. Or what normal people might describe as the following: we care about others, what they think of us and what we believe is moral (Hi, Smith, McCloskey and the impartial spectator!). Not that economists allegedly following in the footsteps of Adam Smith would know, seeing as how they haven't cared for History of Economic Thought for half a century or so.

The limits of such shallow optimisation-&-utility-functions-&-equilibrium thinking is neatly illustrated by game theory, Varoufakis says. In his view, it shows where such story-telling no longer holds and where dialectic understanding must begin, what he calls the "limits of pedagogical analytics". It must take quite some insight for somebody who dedicated most of his academic career to game theory to revolt against the idea that "truth lie in mathematics". Somehow, his description of game theory makes me want to study it even more. Not because it's useful or he's wrong or because it's vital for economics, but because it's so revealing - and actually quite fun.

After at length discussing Ken Arrow and his destruction of mainstream welfare economics (which I still think destroys democracy as a system of governance, but that's a different story), he moved on to praise Economic History and History of Economic Thought (yes, they're different things, google them). Three things are needed for a radical turnaround in economics, for mainstream economists to take the red pill: a) economic history, b) combined with history of economic thought, c) lots and lots of scepticism. In other words: economists need to know what happened in the past (=a), and they need to know what other economists thought about those (and other) events at the time (=b). The last part of scepticism, Varoufakis says, was lost somewhere in the 1960s. I'd hold that a & b are sufficient for sparking a revival of critical thinking among economists, rather than the MR=MC or MRS=BC-machines economics department are spitting out these days.

Lastly, Varoufakis gave us prospective PhD students a soul-wrecking challenge. To pick the red pill is to live a difficult life on the outskirts of academia, never being recognized for one's work outside the narrow circle of one's supporters. This is where Varoufakis in traditional leftie manner becomes overly conspiratory and refers to outer forces crushing them. He nevertheless has a point that pluralistic economic thinking and political economy is frowned upon, articles discussing such topics firmly barred from the most prestigious journals. Taking the red pill is to live a difficult and uncertain academic life. Taking the blue pill is easier, and one's income is more steady, one's academic career more stable. Suck it up and play their game. If people have the intellectual capacity and the ability of intellectual 'double-think' for decades while building their reputation, that might be a way. Cognitive dissonance is a thing, Varoufakis points out, and psychology allegedly indicates that it is mentally painful - especially when your stable income and reputation depends on you not revealing your inner doubts about the mainstream framework.

As a friend of mine recently pointed out, maybe a way forward is to suck up most mainstream ideas, really learn them and their background and their logic and slowly 'change from the inside' - establish a platform from where you can actually do something. Cute, right?  Or following Roger Farmer's advice, that I have quoted at length before, to work hard and really embrace the mainstream paradigm:

Continue to question everything you are taught. Lobby for classes on alternative approaches: but also take the time to absorb those ideas that are in the mainstream. [...] That takes hard work, perseverance, and patience.

Varoufakis finished with a hopeful story by the late socialist Paul Sweezy around the time of the Vietnam War. He had been running weekly seminars in political economy at NYU (?) with a handful of students attending. One day, at the beginning of a semester, the halls outside his classroom were completely packed with people. He asked some of them what they were there for:

- Professor Sweezy's seminar on Political Economy!

The Vietnam War had happened, and suddenly everyone was interested in his issues. Same thing goes with our current conflicts with mainstream economics, as seen by the rise of the pluralist movement. Something unforeseen is sure to happen in the world, and will have larger impacts on the economics department than the feeble Pluralist movement is currently having.

With patience and hard work we can do this, red pill or not.